ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2019-Q2

[Leonard Lee, executive]

Good morning, and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology 2019 Second Quarter Results Announcement Investor Conference Call.

Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks, which could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the IR presentation related to our Q2 results can be downloaded from our website, www.asmpacific.com.

With us this morning are Mr. WK Lee, CEO of ASM Pacific Technology; and Mr. Robin Ng, CFO of ASM Pacific Technology. We will start with a brief discussion about our 2019 Q2 results, followed by a Q&A session.

Without further ado, let me hand it over to Mr. WK Lee. Mr. Lee, please?

[Wai Kwong Lee, executive]

Thank you, Leonard. Good morning, and good evening, ladies and gentlemen. We appreciate your joining us of our 2019 second quarter investment -- investor conference call today. I will first provide you with a summary of the company's performance, followed by the Q&A session.

During the period, group bookings increased by 13.8% quarter-on-quarter to USD 602 million. Group revenue experienced a small Q-on-Q decline of 1.2% to USD 461 million. The group ended the period with strong backlog of USD 795 million, slightly lower than direct backlog of USD 809 million as of end Q2 2018.

All 3 of our business segments achieved Q-on-Q booking growth during Q2. Bookings of our SMT Solutions Segment shows 54.4% to a [indiscernible] of USD 296 million. SMT Solutions Segment's bookings were driven by automotive, industrial, consumer electronics and 5G infrastructure demand. The group benefited from the 5G infrastructure investments and a strong SMT equipment market in China during the first half of this year.

In the second quarter, new order bookings of the Materials Segment grew 28.5% Q-on-Q. Bookings of the Materials Segment increased consecutively over the past 2 quarters. Secondly, the semiconductor market may have reached the bottom and start to recover. However, we anticipate that the semiconductor industry is still facing strong headwinds due to the trade tensions and the economic uncertainties.

During the period, bookings of our Back-end Equipment Segment rebounded by 10.9% Q-on-Q driven mainly by the strong bookings from the CIS market. Demand for traditional die and wire bonders for the IC/Discrete and LED markets remained weak. Billings of our Back-end Equipment Segment increased 5.2% Q-on-Q during Q2.

Besides the strong momentum from CIS, advanced packaging contributed close to 20% to the revenue of the Back-end Equipment Segment during the first 6 months of this year. Strong demand for ASM NEXX's advanced packaging deposition tools for RDL, redistribution layer, and copper build-up applications continued from Q4 2018 into the first half of 2019. A significant portion of this order backlog is expected to be realized as revenue in the second half of 2019.

Billings of our automatic inspection equipment, AOI, for the first half of 2019 more than doubled the billings in 2018. The equipment is deployed for the detection of particles and bonding quality in camera modules and automotive devices.

The Materials Segment is continuing on its path of recovery. During the second quarter, billings of the Materials Segment increased at 13.2% Q-on-Q to USD 57 million.

Affected by a 10.3% Q-on-Q drop of the revenue of the SMT Solutions Segment, group billings suffered a small reduction of 1.2% comparing to Q1 this year. The drop of the SMT Solutions revenue was still due to lower bookings received in Q1 this year. During the 6 months period, billings of the SMT Solutions Segment were USD 418 million, a small reduction of 3% comparing to the same period last year.

Our strategies of serving a diversified application market and investing in advanced packaging has enabled the group to partially mitigate the likely impact brought by the Sino-U.S. trade war.

In the second quarter this year, gross margin for the group improved by 185 basis points Q-o-Q to 35.7%. All the 3 business segments achieved a Q-o-Q improvement in gross margin. Headcount of the group was reduced by around 2,400 people over the past 12 months mainly from manufacturing. Group OpEx was reduced by 5.6% year-on-year. Excluding the acquisition made during the second half of last year, group OpEx will have been reduced by 14.5% year-on-year on an apple-to-apple comparison. Group net profit was HKD 70 million, which would have increased by 10.3% Q-o-Q if the under provision of tax of HKD 49 million booked in Q2 2019 was excluded.

While we remain cautious of the short-term trajectory of the semiconductor industry, we are optimistic of its long-term future. Accordingly, we remain steadfast in our R&D commitment and are focused on new developments that are geared towards meeting the needs of our customers in areas like advanced packaging, CMOS imaging sensors, 5G, IoT, automotive, silicon photonics and mini/micro LED displays, to name a few.

Against the above backdrop, we are anticipating the group revenue in Q3 2019 to be in the region of USD 550 million to USD 600 million, subject to actual timing of revenue recognition. All the 3 segments are anticipated to deliver Q-on-Q revenue growth.

With the uncertainties in the global economy and the semiconductor industry, we do not expect the near record bookings achieved by our SMT Solutions Segment in Q2 this year can be repeated in Q3. Therefore, we anticipate group bookings in Q3 to come down from the level of Q2 due to seasonality. Bookings for Back-end Equipment and Materials Segments are likely to continue to show Q-on-Q improvement. Due to the geographical mix of SMT Solutions revenue in the next 3 months, we only expect Q3 group gross margin to improve slightly despite higher Q3 revenue.

With this, we thank you for your attention, and we are ready to take your questions.

[Operator]

[Operator Instructions] Our first question come from Donnie Teng from Nomura in Hong Kong.

[Donnie Teng, analyst]

My first question is regarding to the bookings. So could you elaborate more on the third quarter booking momentum within the Back-end Segment, for example, IC/Discrete and the CIS? And also, I'm curious about the strong SMT bookings second quarter because there were some power issue in second quarter. So could you elaborate more on how far with this related business to have impact for SMT business and why we can still make very high bookings in the second quarter?

And my second question is regarding to backlog. So our backlog has been pretty high, as you mentioned in the presentation. Is there any customer postpone their payment during the down cycle?

[Wai Kwong Lee, executive]

Okay. Thank you. We continued our booking momentum for 3Q. I would say the industry overall still have a lot of uncertainty. Judging from the momentum, we believe for the -- our Materials Segment, the lead frames, booking continue to go up. We see this -- probably, the trend is much more obvious. But coming to the semiconductor Back-end Equipment, we still see the trade war has certain impact on our customers, affecting the -- our customers' confidence of investment.

So as I mentioned earlier before -- earlier, bookings or demand for the traditional die and wire bonders for the IC/Discrete or LED remained weak at this point in time. So however, looking at CIS, typically, in the past, most of the booking for our CIS business will come lean in the first 2 quarters of a year. This year, we see there has been a delay by [ approximate ] quarter. So Q1 CIS booking was not as strong as the last few years. But Q2 booking for CIS was pretty strong. And we look to establish momentum seems to be continuing in Q3. So we believe that Q3 will still see quite strong booking momentum for CIS. However, we do not foresee a very significant pickup for the booking of traditional die and wire bonder. Whereas for the demand for this Advanced Packaging, we see the momentum continue. However, because this is still in the early stage of industry development, so it will depend on the timing of the projects for particular specific customers. So it may affect the actual booking coming -- timing of actual booking coming in. Whereas for the SMT, very interestingly, the strong booking also took us by surprise.

When we carefully examine the market momentum, we look to -- actually, China market was pretty strong. When we say China market, it's not only for ASMPT but probably for our peers also. From the market statistic data available to ASMPT, you see the European market is pretty flat, stable, I would say, same as for the American market, whereas the Asian market, especially the China market, really shows a very strong momentum of market pickup for the past few months. 5G infrastructure investment is definitely one of the factor. But besides of that, we also see demand from [indiscernible] industry application ranging from automotive, industrial electronics, consumer applications are all good. So however, typically, Q3 is a quarter -- the European market will be quiet because of this holiday season, this vacation season. So that's why we do not expect we are able to repeat that momentum.

Yes, the market has a lot -- talking about the Huawei, all this. But however, from the -- our actual business activities, I will say the direct impact on ASMPT is fairly limited so far. Probably, on the other way, one, we're seeing some urgent rush for orders in Q2 for the semiconductor Back-end Equipment. And we believe we could be, from this, suppliers to Huawei because they are localizing their supply chain.

For the backlog, it has been a very high backlog for us. So far, no customers really postpone payment to us due to this industry climate. We do face a little bit customers pushing back or holding back their delivery, but that actually has been, I would say, happening since the trade war started a year ago, but this is not [indiscernible] today. The high backlog part is due to the timing of the delivery and the timing of the revenue recognition. We expect backlog to come down by end of Q3. Thank you.

[Operator]

Our next question come from Kyna Wong from Crédit Suisse in Hong Kong.

[Kyna Wong, analyst]

So I have a question about the gross margin because we see that the advanced packaging actually come like 20% of Back-end sales in first half. So for the first half, Back-end gross margin seems like it has really benefited from this kind of a mixed increase, somewhat maybe due to the other segment that faced more challenge. Can we [indiscernible] from this? This is the first question.

[Wai Kwong Lee, executive]

Okay. Well, thank you. Well, the gross margin for the Back-end Equipment in the first half of -- in Q2 mainly affected by the relatively low one-off shipment and also the low production activity. So these are the major factor for that. Yes, you are right. The gross margin for advanced packaging actually, I would say, not bad. And overall, actually, the gross margin or we call this the materials margin for all those Back-end Equipment show in the first half of this year is okay. But however because of this [indiscernible] utilization, absorption of overhead -- production overhead. So this dragged down the gross margin. So we believe when the sales activity recover to a high level, our gross margin for the Back-end Equipment will show a much better performance. Thank you.

[Kyna Wong, analyst]

Okay. But actually, you have increasing more accessibility strategy in these, like, manufacturing, like, [indiscernible] between the in-house and other house, I think. So it seems like the rapid change was pretty high in these cases. And how do you -- how would you improve this kind of situation? And what can we expect the production utilization in the coming few quarters? I mean, this year, you will face a lot of challenge in terms of manufacturing allocation, right?

[Wai Kwong Lee, executive]

Yes. Now I would say if you're looking at our billing for this -- for the first half of the year or particularly for Q2, actually, the Back-end Equipment billing actually suffer a 30.3% year-on-year -- on a year-on-year basis, a contraction on a year-on-year basis. And if we exclude the acquisition we made in the second half of last year, actually, you can see that the contraction is even higher. So actually, this is the major factor affecting us.

However, when you compare the gross margin, last year, Q2 last year, we achieved a very good gross margin of slightly above the 50% for the Back-end Equipment business. And this year, we -- Q2 this year, it's slightly about 40%. So I would say, considering -- comparing with other back-end acquisition, there's a 140% job of this Back-end Equipment business. However, our gross margin only [indiscernible] by 110%.

So comparing to the years before, actually, the strategy has worked for us. So it significantly reduced the volatility of this gross margin due to this fluctuation in the sales volume. But, of course, we continue to grow on it, so that's why we also continue to grow on reducing our manufacturing headcount and also continue driving cost-reduction effort. So we hope to achieve an even smaller gross margin fluctuation in the next cycle of business fluctuation.

[Kyna Wong, analyst]

And then I have a question about the backlog that Donnie asked about. So this high backlog, you -- personally, you mentioned advanced packaging, that backlog will be, right, fulfilled in the second half. So we could expect the backlog level should be, like, back to a more normal level in the second half or like not only the advanced packaging, but the other back-end or SMT [indiscernible] there and then probably because of customer pushing on the delivery. So what should we expect with [indiscernible] on this backlog because it may not really convert to your sales?

[Wai Kwong Lee, executive]

It will -- [indiscernible] [ 100% ] in our sales in Q3. However, for the significant part of it, we will come back to billing in Q3. For the advanced packaging, majority will be converted into billing or realized as a billing for -- in the second half. A certain portion based on today's expectation, we will only be able to deliver towards end Q3, beginning of Q4. So from a revenue recognition point of view, it could be in the first quarter of next year, so there's a smaller portion of it.

Next, for the SMT, because last quarter was very strong, okay, so we're still need to deliver those machines in Q3 and then recognize those revenue. So the revenue recognition for those big orders, the strong [indiscernible] orders -- strong orders in Q2 will be recognized partially in Q3 and partially in Q4. So I would say by end of the year, I think the overall backlog level will come back to a more normal level.

[Operator]

Our next question come from Arthur Lai from Citigroup in Hong Kong.

[Arthur Lai, analyst]

I have 3 questions. Number one is on the advanced packaging. I think TSMC, they have earning call last week, and they raised their CapEx to $10 billion to $11 billion, especially on the increasing 7-nanometer and 5-nanometer. So WK, can you elaborate more about this -- your AMICRA and NEXX, how they benefit from this rate CapEx? This is my first question.

Second one, I noticed that this quarter, the tax rate was extremely high at 62%, and last quarter, 40%. And I think recent 3 years, average tax rate is about 20%. So I touched [indiscernible] because SMT business mainly made in Europe. And can you elaborate more about your production of the SMT between the Europe and also Asia and how we expect this migration to Asia?

And third one is more about the gross margin. If we would [indiscernible] reason [indiscernible] cycle for 2009 [indiscernible] quarter, first quarter gross margin up from 21% to 36%. And then the second cycle in 2012 moved up to also 5% to 6% increase. So my question is why this time when we reached the top and your gross margin forecast is flat or slightly down. This is my third question.

[Wai Kwong Lee, executive]

Well, for the first question on this advanced packaging, in particular, relating to the [indiscernible], as you know, we can't comment on specific customers' activities. But in general, when the industry are moving into [indiscernible] geometries, advanced packaging assembly will, in general, benefit because you need more -- a new map -- a new way of assembling the chips. Wire bonder definitely -- the wire bonder is definitely out of the question. Even for traditional [indiscernible] bonding, you have a limitation over there. So that's why, typically, for those application, customer are looking for either TCB solution or a fan-out solution. So in general, that will benefit a supplier. We will be able to supply those advanced packaging equipment, okay? Now with the other questions on the tax and also the gross margin, I'll let Robin to elaborate on that.

[Cher Ng, executive]

On the tax rate, you're right. Tax is [indiscernible] is around 62%. But we mentioned that there is this under provision onetime tax that we have to make of HKD 49.3 million. So if you exclude the onetime, the [indiscernible] tax rate will come down to around 36%. Yes, they're still high. That's because of the relatively higher profit mix from the SMT. As you know, SMT tax rate, tax higher than the back-end, so mainly due to the profit mix fully taxed.

[Wai Kwong Lee, executive]

Gross margin?

[Cher Ng, executive]

Yes. So I think for gross margin, talking about why Q3 is still relatively low in terms of [indiscernible] already mentioned, we -- because we can see that the geographical mix of SMT in the coming quarter, so that will also affect the SMT gross margin. So as a result, in a blended fashion, we expect Q3 gross margin to improve slightly despite the higher forecasted revenue in Q3.

[Wai Kwong Lee, executive]

If the revenue recognition [indiscernible] earlier [indiscernible] in particular for advanced packaging, then the overall gross margin should improve further, okay? But at this point in time, we take a more conservative approach looking at the revenue recognition. So this geographic mix of the SMT business will have an effect on the group gross margin.

[Operator]

[Operator Instructions] We have another following question coming from Arthur Lai.

[Arthur Lai, analyst]

So WK, can I also ask more question on the advanced packaging? I think this is quite important. Can you compare the lead time between the traditional back-end business with advanced packaging? Is the lead time significantly higher? That's my first question?

And then second is, yes, I understand we cannot mention the client name, but I think last time, we did say SEMICON Shanghai, and we saw a AMICRA's machine. And we think that's quite leading in, not to say, the science geometry to [indiscernible]. So can you share with us the competitiveness you have in this area and how you will be [indiscernible] in 2020? Yes, that's my 2 questions.

[Wai Kwong Lee, executive]

Thank you. Well, for the lead time -- on the lead time for this advanced packaging equipment, it really depends. It will be not too long for the TCB bonders. But when it comes to those acquisition equipment from the ASM NEXX business we acquired at the end of fourth quarter last year, it would take a longer time, and also, it would take a longer time for the delivery and installation. So that's why it would take us also a little bit longer time to have the revenue recognition.

So for the AMICRA, we have a very strong billing position in those products. AMICRA is open to our customer. However, they mainly serve the silicon photonics market. For the high [indiscernible] placement market relating to the advanced packaging, we more serve with the products from our Hong Kong operations. We do some very high [indiscernible] machine and also the [indiscernible].

On the silicon photonics, actually, the booking for the last quarter was pretty strong. And actually, we expect this strong momentum to be continued into the second half of this year. So you see probably customers are really gearing up for the 5G. So the investment in data center are really increasing in order to prepare for a much, I would say, larger amount of data to be transferred, to be handled, to be stored in those data centers. So we are seeing the good momentum there, and we have a good marketable season in those areas.

[Operator]

Our next question come from [indiscernible] from Goldman Sachs.

[Unknown Analyst]

I have 2 quick question. First one is on the 5G infrastructure that you mentioned driving strong bookings for SMT Segment in second quarter. Could you share with us how do you expect the trend to pay out in next few quarters? Will there be a need to be strong [indiscernible] or so?

And second question is regarding the 5G smartphone, how do you expect the 5G smartphone-related SMT demand will start to be more significant?

[Wai Kwong Lee, executive]

So on your first question on the 5G infrastructure, well, we see the momentum continued. We are expecting some more orders in Q3. However, how many quarter it will last, I think we probably won't be able to answer this question directly. It really depends on customers' -- their own plan and also the pace of rolling out the 5G infrastructure also beyond China. So we are closely watching that. However, we believe 5G will be the trend. And finally, I would say, a very large part of the world will become 5G. So we are very opportunistic about this opportunity going forward.

Now for the 5G smartphone, we can't be 100% sure at this point in time, but we [indiscernible] on the 5G infrastructure buildup. We believe it's coming. We do have orders for our SMT equipment in the second quarter relating to smartphone, but we are not able to ensure 100% it's 5G smartphone-related. Thank you.

[Operator]

Our next question come from Kyna Wong from Crédit Suisse.

[Kyna Wong, analyst]

I have a question on the cash flow. So maybe this question is for Robin, actually. So we have -- I see 2, like, quarter in terms of making profit, et cetera. So what kind of, like, cash flow position by end of the first half? I mean do you see any need for other, like, facility and also -- or other means of, like, the capital raising, et cetera?

[Cher Ng, executive]

Yes. Cash flow, ironically in the downturn. Typically, our free cash flow turn out to be better. That's also happened in the first half of this year basically because we buy less materials. So that helps in terms of generating more free cash flow. Now at this point, we are sufficient. As you're aware, in March this year, we redeemed our convertible bond. With -- now with the syndicated loans and we're preparing with the consulting of banks to finance the CB. So we are sufficient at this point in time. So we don't see the need to raise further capital in the near future.

[Operator]

Our next question come from Chris Yim from BOCOM.

[Seeching Yim, analyst]

I have a few follow-up. The first one is regarding 5G again. For 5G infrastructure driving SMT business, is it because 5G require higher SMT precision so that you're seeing a 5G-driven upgrade? Or is it just because of capacity expansion? That's the first question.

Second question is related to your, again, your advanced packaging business. You highlighted that your advanced packaging now account for more than 20% of your back-end business, but your back-end business in the first half is down by around 30%. So can you talk about how the overall growth is looking? And also, you mentioned there are some new projects that you're waiting for your customer to ramp. Without talking specifically about your customers, can you give us more color on what type of projects, what type of solutions we have and what type of tools you'll ship into this customer when they do ramp up?

[Wai Kwong Lee, executive]

So on the first question on the 5G infrastructure, well, we believe actually to our customer probably is for upgrade capacity expansion. Typically, in this SMT business, a customer will buy the latest tools of SMT equipment for all their new projects and then take their opportunity to retire some old equipment. So this is happening in our opinion. Certainly, the 5G infrastructure also need a better accuracy equipment. And also, we expect the 5G smartphone will need a better accuracy equipment. So from that perspective, we are pretty, I would say, optimistic about near- to long-term future of the SMT business.

We -- as for the -- regarding the tools for advanced packaging. At this point in time, mainly focusing on a few areas, the TCB. TCB is one of it. We have delivered a significant quantity of TCB bonder during the first half of this year. And then the other area is the -- relating to this fan-out. So both these wafer level fan-out and this panel level fan-out applications. So these fan-out applications, typically, we supply customers with the high-precision equipment from this -- our ASM NEXX business in U.S.A. as well as the pick and place with high-accuracy pick-and-place equipment mainly from our Hong Kong operations. So these are the 2 area.

So we -- for that acquisition tools that are significant backlog on hand. So this -- as we've mentioned earlier, a large portion of this backlog will be realized as revenue in the second half of this year, and a smaller portion of it will take place in the first quarter of next year. So -- and besides of these 2 equipment, the deposition tools and also the pick and place. The other tool for this advanced packaging, it will be the later singulation software tools from our operation in the Netherlands. So these are typically the major tools we delivered to customer for advanced packaging. And also, last year, the -- this wafer-level packaging equipment, the Sunbird, is also another important business for us relating to the -- our air filter applications.

[Operator]

Our next question come from Flora Lai from Hang Seng Bank.

[Flora Lai, analyst]

I was thinking about the strategy of the group. I assumed to -- I thought your group is taking in organic growth at the same time doing a lot of measure in acquisitions just like the one of last year. So may I know if your group is looking for any merger and acquisitions deals in the coming months or like next year? If you are really taking some merger and acquisition deals on hand, would it be related to the back-end equipment or like -- or the SMT Solutions?

[Wai Kwong Lee, executive]

Yes. Thank you for all your questions. We -- actually, we continuously, I would say, are looking for new opportunities. But as of this point in time, there's nothing, I would say, concrete that we can share with you.

We -- actually, if you refer to our presentations, we also mentioned about our investment in this inspection packaging business. Actually, besides of acquisition, M&A, last year, we also witnessed an investment in a start-up in Silicon Valley. They are -- they're developing and also producing a very high-speed x-ray inspection machine for advanced packaging. In the past, typically, a customer used x-ray as a tool, off-line tool, to sampling check the quality of that production because the speed of those x-ray are not fast enough. But there's a start-up in Silicon Valley, they have a technology. They believe digital will be 100 -- at least 100 times faster than the traditional x-ray machine and make online inspection possible. So we are very interested in the technology, and we invested in this company. So this company also started to deliver their first machine to the end customer.

So it's -- I would say, going forward, our strategy is not only limited to M&A. We also want to meet this kind of strategic investment in technology companies that we think would be relevant to our business in the future. So we are pretty open at this point in time. But as I mentioned, at this point in time, nothing concrete that we should be sharing with the public. Thank you.

[Operator]

Our next question come from Simon Woo from Bank of America.

[Simon Woo, analyst]

First question is regarding your top line growth year-on-year basis. So which quarter should be the first time we can see again the year-on-year growth? Because so far, every quarter revenue showing year-on-year decline. So maybe should we assume that maybe the fourth quarter should be the first time to see the year-on-year increase? If so, which application can be the catalyst, more SMT related or more the back-end area related?

[Wai Kwong Lee, executive]

Thank you for your question. Yes, unfortunately, for the last few quarters, there's always as year-on-year jump. It's partly also because 2017 and also the first half of 2018 has been very strong quarters for us in terms of billing. However, if you're looking at guidance in the billing for Q3, I would say probably Q3 2019 billing will be not that far away from the level of a year ago. And judging on -- to this momentum, we hope to achieve a year-on-year growth in billing by Q4 as you said. But however, in our opinion, it's still subject to a lot of factors, external factors that are probably beyond our control.

And I think today, the biggest uncertainty is still the trade war. If there's any new development that affect our customers' confidence, I think that would still derail the path of recovery of the semiconductor industry we are seeing today. So that's the main -- the biggest concern. Assuming that it's not going to happen, that's not going to suddenly, luckily, have a big negative impact on the semiconductor industry, I would say it would be a fair assumption to say -- to see -- to assume that by Q4 2019, we'll see -- we should be able to deliver a year-on-year growth in our company.

[Simon Woo, analyst]

Even the -- this coming December quarter?

[Wai Kwong Lee, executive]

Yes. Yes. Yes.

[Simon Woo, analyst]

I see. And lastly, sir, regarding your shareholder return policy. Because the first 6 months of 2019, EPS number is already below the $1 versus a year ago $3.50 range. So any rough -- any idea what to expect regarding the interim cash dividend for first half of 2019 and then maybe second half?

[Wai Kwong Lee, executive]

The Board has resolved to give an interim dividend of $1.30. So to explain, our earnings per share, EPS, is so low, but we are confident about our business, our profitability capability. So that's why we stick to our dividend policy offer as sustainable and gradually increasing dividend policy. So we are matching the same dividend payout last year, $1.30, for the first half. The last -- the second half of last year, it was $1.40. So if we continually will be able to hold on to this dividend policy, you should be able to assume or expect our final dividend will be at a similar level for the second half of this year.

[Operator]

Our next question come from Alan Deng from KIARA.

[Alan Deng, analyst]

I think that my questions have been asked already.

[Operator]

We have another following question come from Arthur Lai from Citigroup.

[Arthur Lai, analyst]

WK, so my question is on advanced packaging. So I recall 2 quarters ago, you mentioned that advanced packaging already make up 10% of the back-end revenue. And then you also mentioned this time, you see a backlog in the end of this year or probably to the first quarter of next year. Can you share with us right now if the advanced packaging in the second half already can achieve a 10% or even higher of the total back-end revenue?

[Wai Kwong Lee, executive]

Yes. Thank you. Well, I think we are pretty confident. On full year level, we were definitely higher than 10%. And for the first half of this year, it was close to 20%. It was below 20% but close to. We -- based on today's momentum, unless there's a certain very strong ramp-up for the demand for die and wire bonder otherwise, based on the current momentum, I think the overall picture will be the same, probably about the 10% level but maybe not too far away from the 20% level of the back-end equipment business for the whole year. Thank you.

[Operator]

Next question come from Kyna Wong from Credit Suisse.

[Kyna Wong, analyst]

WK, just a follow-up question on the overall OpEx trend because we see the OpEx -- or the sales increase in the second quarter with some other reasons. But in the second half, should we look at the level of OpEx? And as you also increased the R&D to like 12.9% of the back -- of the equipment sales, so should we maintain this level? Or like going forward, you still expect around 10% of the equipment sales?

[Wai Kwong Lee, executive]

Well, actually on -- I would say, another term -- perspective, we should continue to expect 10%. So going back to the 12-point-something percent in the -- during the second quarter or the first half is mainly because of the sales revenue has come back, okay? The group actually has done a lot of things to control our OpEx. As I mentioned earlier, if we are comparing on an apple-to-apple basis, actually, it was more than -- it was around 14% year-on-year reduction. So we are doing our best to control it, and we expect to do even more.

However, the OpEx will go up slightly in the second half due to also, in general, there will be a thorough review across the Board in the middle of the year. So this will slightly increase our OpEx. But however, we try to offset this effect as much as possible by having more prudent cost control efforts across the board. The quarter-on-quarter increase of OpEx are mainly relating to the expenses relating to the shared incentive because we typically would grant the shares to the -- our employees by the Board at the end of March. So the expenses related to this will be started to [ book in ] by then. So that's why compared -- I think the 2 quarters, you will see a small increase, a single-digit percentage increase in this OpEx.

[Operator]

Our next question come from [ Winnie Tau ] from KIARA.

[Unknown Analyst]

I've got 2 questions. The first one is if we take out the rush order from the big client, for the rest of our clients, compared with 2 to 3 months ago, do we see the momentum of the booking improving? That's my first question.

[Wai Kwong Lee, executive]

Well, I -- maybe I should clarify. In the Q2, we don't really have a single order coming from one big client. Actually, the -- this [ triple basis ], pretty diversified. So you can see on a billing basis actually, the top 5 customer mainly account for 1 -- 15% of our group billing. So we do not have one big customer giving us a quick order, so unlike those time in 2014, 2017.

[Unknown Analyst]

Okay. And then the second question is, given that we mentioned some of the 5G-related project in SMT that happened in the second quarter, so if we take out the 5G-related SMT, do you feel for the rest of the year you could actually see the first quarter to be better than third quarter in terms of the booking? And just as Robin mentioned 3 months ago.

[Wai Kwong Lee, executive]

Well, regarding the booking trend in fourth quarter, I would say, really a bit too early for me to predict at this point in time. So there are 2 factors affecting it. One is, typically, when it comes to year-end, the market would be shorter. On the other hand, the trade war continue to be a factor. I don't think the trade war has been resolved. Hopefully, after the U.S. administration's meeting with other major tech CEOs in the U.S.A., maybe we can change in this policy or regarding the ban on Huawei. If that is the case, I think it will have to push up the demand for semiconductors and semiconductor equipment in general. Otherwise, I would say, if it turned the other way around, so it continue to affect the confidence of investment of our customers.

So if looking at Q2, what we can see is that the customers in China competitively are more optimistic than customers outside China. I think probably, we can understand the rationale behind -- or our customer in China, they believe more semiconductors will be produced or will be in-sourced within China. We are -- for our customers outside China, they really want to watch what is the development of the trade war, how this will this affect their business. China is still a large market for all the semiconductor companies in the world. So I think this uncertainty will continue to pass a toll on the future of the business. And make us difficult to make any, I would say, a sensible forecast of our Q4 booking at this point in time.

[Operator]

[Operator Instructions] And our next question come from Jeff Hsu from Morgan Stanley Taiwan.

[Charlie Chan, analyst]

This is Charlie Chan. So yes, I just want to follow up that 5G infrastructure SMT question. Can you elaborate a little bit what kind of infrastructure demand you are seeing? Is there more like a base station or those core networking, [ optic ] core networking products? Can you elaborate why those kinds of products need more SMT machine?

And also, my question is really about that 5G infrastructure development has been in discussion for maybe 2 years, and you also see that China Mobile, China Unicom, China Telecom all -- gave all their CapEx already maybe 0.5 years ago. Where -- why there is a sudden acceleration of the demand of SMT? Can you give us some thoughts on that development?

[Wai Kwong Lee, executive]

For the 5G infrastructure, well, to be honest, we are not that familiar of details of those applications. But however, we can tell is that the base station definitely is one of it. Certain server applications are the other area. Now for the 5G, actually, for the last 2 years, we do have some orders 5G related, but there was a small quantity. Our observation is that customers are building some -- I would say, testing the rollout of 5G in certain areas. So if you read from the news, you'd know in China, so they have built up a certain number of 5G coverage in selected cities, selected area. However, this year, we start to see customers are ordering more equipment from the [ number of ] SMT lines they order. So we can see, we can believe there will be massive rollout on a much, much wider coverage. So we [ tend ] to see what we see. And as I've mentioned earlier, we see the discussion is not only for those orders we have already received in Q2, but we are still discussing certain orders to be closed in Q3 this year.

So I think probably, we test -- China has test the 5G to a certain extent and start to feel they're comfortable with the technology, our customer comfortable with the technology and start to prepare for this massive rollout. So well, we hope that is the case. And also, it depends on the 5G smartphones. So if the 5G smartphone also generate new a consumer experience, that probably -- it will be a positive reinforcement of the further increase of the 5G infrastructure demand.

[Charlie Chan, analyst]

So my question is more about, yes, because I perceive that from 4G to 5G is kind of a migration, right? And it sounded like dual cam upgrade to triple cam, you can -- you need a more -- those active alignments or SMT machine. I mean from 4G migration to 5G, you can still use an original 4G base station SMT lines to produce the 5G base station. Why there is kind of an increase of the SMT demand? Do you see any kind of an incremental SMT demand, meaning comparing -- doing a 4G base station assembly versus 5G? Do you see there the difference?

[Wai Kwong Lee, executive]

Yes. Well, according to our customer, they explained to us is that because of the differences in the wavelength between 5G and 4G, the coverage of a base station -- a 5G base station is roughly only 1/3 of the coverage of the 4G base station. So in order to cover the same area, the customer told us they use a rule of thumb number 10x because of square feet -- the square feet is nice so they use a rule of thumb number telling us that roughly in order to have the same coverage, you need 10x the base station comparing to 4G. So the demand for these semiconductors, the demand for this SMT actually will increase.

[Charlie Chan, analyst]

Okay. Yes, interesting because typically, we see -- we should see a broad revision of operator's capacity before we see more demand for hardware. But I guess we will see it.

And about -- my next question is about your CIS demand is also improving. And I think we all know that Huawei's overseas smartphone demand is impacted by the research in using Google mobile service, and this should impact Huawei's high-end smartphone demand and that if a major shows up, that triple cam demand, right? So how do we reconcile this discrepancy? I mean the triple cam demand should be impacted, but do you still see a very strong CIS-basis recovery?

[Wai Kwong Lee, executive]

Well, it seems to be -- Huawei is not the only company introducing the triple cam. I think there also other Chinese brand phone makers. They have the similar structure, and also, there's rumors about other first-tier smartphone companies also introducing using a smartphone with multiple cameras in the later part of this year. So actually, in our opinion, high resolution, more cameras are definitely a trend. And high magnification. And today, the high magnification -- we are talking about optical magnification. So actually, it really generates a lot of excitement from a user perspective. So we believe this will be the trend and, thus, will be what the consumer will demand.

The political situation could affect the business of an individual phone maker. However, in our opinion, the loss of business by -- from one phone maker will be taken up by other phone makers. So since now our equipment are not tied to a particular phone maker, so I think the impact on our equipment will be very limited.

[Charlie Chan, analyst]

Okay. It's usually -- just one more, if I could -- if I may. So substrate PCB -- sorry, PCB -- substrate-like PCB. I remember a couple of quarters ago, you mentioned that with the 5G smartphone comes that substrate-like PCB. Demand should increase, and that would also push the demand of your SMT. So do you think that, that is happening? And at what -- in which quarter do you see the business will start to materialize?

[Wai Kwong Lee, executive]

Well, we still believe that will be the case because the rationale for the industry to believe so is that you need a bigger battery, a high-capacity battery to support the 5G smartphone. So we don't see any technology development in the battery significant enough to change this picture yet. So there's still the assumption by the whole industry, not only ASMPT but also our customer. So even on the semiconductor packaging side, we see customer keep telling us they have a need to continue to shrink down the size of the chips in order to give more space to the battery. So we believe this will be the trend. So substrate-like PCB, smaller form factor ICs, smaller form factor passive components, PCB components will all be the case. And then that will need a higher-precision, higher-accuracy SMT equipment.

So we, as I mentioned earlier, we also received some order for smartphone. Although we are not sure it's 100% 5G related, but judging from this customer ordering these orders, I mean this batch of orders from ASMPT for their smartphone applications, we believe customers are really looking for certain performance like the higher accuracy from the higher-price equipment we are offering to the market.

[Operator]

[Operator Instructions] There seems to be no further questions at this point in time.

[Leonard Lee, executive]

Okay. Well, I think we've had a very good discussion this morning. And if you don't have any further questions, I think we'll conclude the conference call now. And thank you very much for participating in this conference call, and we'll talk to you again next time. Thank you very much. Buh-bye.

[Wai Kwong Lee, executive]

Thank you. Buh-bye.

[Cher Ng, executive]

Cheers.

[Operator]

Thank you for your participation. This concludes your conference. Thank you.